Banking-as-a-Service: A Sporting Chance for Fintechs

Banking-as-a-service (BaaS) has been widely discussed across the fintech world over the past few years. A key component of open banking, it reconfigures the banking value chain by helping remove the intermediaries and enabling tailored banking services and enhanced experience in real-time. BaaS platforms and technologies are transforming the business models of banking and reshaping fintechs’ relationships with customers and partners. 

The current positioning of BaaS in the marketplace

The global BaaS market size is expected to proliferate, projected to reach USD 2,299.26 Billion by 2028. The demand for BaaS products is on the rise for both banks and consumers. According to a recent report by Deloitte, 42% of customers have used a Buy Now, Pay Later service, and double ROAA for banks focused on BaaS offerings. Interest from the B2B side is also increasing, with 85% of senior executives sharing that they are already implementing BaaS solutions, or planning to do so, within the next 12-18 months.

Alongside the increase in demand, client expectations are also rising for industry players, requiring new technology and experiences. However, embedded products continue to dominate in BaaS. Numerous banks and fintechs are now embedding deposits, lending and payments products directly within their own infrastructure. This illustrates that  BaaS products are evolving to more tailored propositions, where distributors are developing product lines to fulfill the ever-changing needs of money management.

Why BaaS is playing a significant role in Fintech

BaaS provides high compatibility to open banking with API implementation

Open banking substantially benefits the fintech industry by helping improve customer experience, generating new revenue streams, and adding a sustainable service model for traditionally underserved markets. It provides the framework that defines how fintech as a third party can securely access and process consumer financial data. Under that framework, BaaS works as a strategy for all parties to collaborate to provide integrated banking experiences to consumers. 

With BaaS, organizations can embed financial services and tools into their existing digital applications, equipping them more than ever before to provide a complete banking experience to their customers. Today’s cloud and digital technologies support fintechs to enable BaaS to their offerings. This has paved the way for deploying automation and rapid scaling in the systems. 

APIs are the key to accessing the door to open banking, allowing distributors to natively embed their BaaS proposition into their experiences. Many fintechs focus on APIs development due to its flexibility and agility in implementation for seamless information exchange between clients and their partners. APIs can leverage data to facilitate innovative products and services to improve customer experience.

BaaS opens new opportunities for more customer-centric products 

Fintech providers are no longer just technology vendors. They are now viable collaborators and partners for their counterparts, financial institutions and businesses in non-financial sectors. In this post-lockdown era, enterprises of all kinds are tapping into this partnership model to enhance their digital transformation to keep pace with customer requirements and avoid being disrupted by newer, more technology-savvy, entrants.

BaaS allows the fintech industry to put new and exciting propositions forward with relevant embedded services. Fintechs and their partners can collaborate to build a customer-focused financial ecosystem through BaaS. This inclusive and flexible model has shown promise especially in B2B transactions by allowing businesses to scale their financial service offerings based on their customer needs.

Take digital payment as an example. In a world where two-thirds of adults are globally making or receiving digital payments, customers need more choices on how their transactions are processed and completed in real time. And BaaS platforms can meet this need. Especially with complicated transactions, such as cross-border payments or foreign exchange, a single BaaS platform can provide transparency in processing and settlement and bring peace of mind to consumers.

BaaS provides better data accessibility to increase client retention and loyalty 

BaaS is putting the power in the hands of the end users and vice versa, with the growth of embedded financial products and services. Fintechs, operating in a dynamic space, must innovate quickly to provide customers with the best experience possible. 

The financial services market is entering an era where consumers expect shared data. BaaS offers unprecedented opportunities to gather data through ecosystems. More than 86% of consumers in a recent survey said they would share their data to gain a better and more personalized experience.

Through BaaS platforms, customers are willing to share their data with fintech providers and distributors for analytics and innovations. BaaS makes it possible for fintechs to create better experiences through data aggregation and without having to navigate complex legacy core processing systems. BaaS helps fintechs deliver the easy-to-use, multichannel solutions that customers seek.

The BaaS model, to conclude, prioritizes API-led, transparent, and customer-centric alternatives with promising opportunities for new products, models, and technologies. While BaaS has already arrived, it will continue to serve the future of financial services and the fintech industry.